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There can be tremendous advantages with paying back unpaid taxes or student loans in a Chapter 13 or Chapter 11 case. In fact, bankruptcy is one of the most underappreciated tools of taking care of tax or student loan issues. The big benefit comes in the fact that tax creditors (IRS, state government, or municipal government) have to file a proof of claim in a case. Taxes are broken down into priority and nonpriority portions, and very often the nonpriority portions of the tax debts receive nothing. This can save a debtor thousands. We have seen cases where a debtor has over $50000 in tax debt and pays back only a tiny fraction of that.

Regarding student loans, it is often not understood that reorganization plans can be proposed and confirmed that allow for the loans to be paid at either 0% interest, or receive all of the “pot” that would normally go to other unsecured creditors. Every case is different, and you really need to consult with us to find out how these rules and options apply to you. But the bottom line is that you need to consider the bankruptcy option. It gives you a lot more power and flexibility than you think.

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